Dipping Into Chips

By David Gaffen

Chip makers are enjoying a solid day Monday after an upgrade by Citigroup analysts, who believe that the sector is poised to rebound once this tough economic period passes and technology companies begin to spend on infrastructure again.

Analyst Glen Yeung upgraded seven different names in the semiconductor and semiconductor equipment sectors, and in doing so, looked to the 1990-1991 period for parallels to the current environment, noting that current valuations are near the troughs reached during that recession, and that estimates have declined dramatically, much as it did in 1990.

Chip Upgrades

Stock

11/3 Change

Integrated Device Technology

+3.6%

Nvidia Corp.

+2.4%

ST Microelectronics

+2.8%

Fairchild Semiconductor

+8.6%

National Semiconductor

+2.3%

LAM Research

+2.7%

ATMI Inc.

+5.7%

Source: Citigroup, WSJ

“We believe the risk/reward has now become favorable to be long selective chip names,” he writes. Valuations are no more than 8% to 13% greater than the 1990 bottom, suggesting the potential for further declines, but probably not much; in addition, just 13.8% of earnings revisions for the sector are positive ones, just above the 12% level reached in 1990.

What would hinder a rebound in these shares, according to Mr. Yeung, are several factors: the severity of the recession, the extent of the decline in consumption, and the market environment. “The financial volatility and the potential systemic risk it creates have increased caution by both households and businesses (e.g. consumer confidence is at its lowest levels on record),” he writes. “This can serve to undermine historical stock patterns and call our thesis into question.”

Comments (3 of 3)

Analyst Glen Yeung upgrade of 7 chip companies today is nothing short of plain speculation which has led us into this situation to begin with.Tis rational is basless and unsubstianted since the recession that we are heading into now is, by all estimates, is going to be much worse than the 1991 recession which he used to calculate his estimates. He is possibly some book smart idiot who has no idea what is a severe recession look like!

12:29 pm November 3, 2008

Warren Huang wrote :

We are in unprecendented financial, credit crisis resulted severe recession, it is overoptimistic use 1990 data for statistical comparison approach to located the bottom can not provide fundamentals causes supporting the shares price.
From my 30 years proactive structural simulation of global monetary, economic, fiscal policy impact on interest rates, currency, inflation, GDP growth, commodities, housing industrial sectors demand, supply, prices mechanism, corporate profit and stock prices performances.
While our current credit, financial crisis, recession resulted stock market over 50 % bear market correction was caused by the burst of
super housing price bubble, which is only half way in correction, with housing price only down 16 %,
which will continue into next year with price down 30 %, which will drag economy into deep recession and profit down 30 % even with severe loss., as ISM index and consumer confidence index plunged to 38 and soaring jobless will further cuttring into consumer, business spending on Chips upstream/downstream demand,
So we will see S& P must plunge below 700, Dow Jones below 7000, NASDAQ 1250 by when housing market complete its correction.
Details on http://www.osawh.com/mortdefa.htmhttp://www.osawh.com/S&P500.htmhttp://www.osawh.com/recession.html

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